Introduction to Construction-to-Permanent Loans

Building a home can be a stressful process, but with a construction-to-permanent loan you can save time and money with a one-time closing. This loan brings you through the entire process of both buying and completing construction with a single loan. 

Once the construction process is complete, you can work with your lender to change from a construction loan to a permanent loan. This type of loan helps to avoid the stress, paperwork, and confusion that comes with getting several different loans and financing options. It ensures that everything is in one place and you’ll only have to pay for one set of closing costs. 

It’s ultimately up to the builder to say what type of financing is accepted for a new build. The builder will make a decision to finance the project with their own line of credit and get paid when the home is 100% complete, or the builder will require the borrower to obtain a construction to perm loan to finance the project themselves. 

During the construction phase, you’ll make interest-only payments, and your lender will schedule regular home inspections to see how the construction is progressing. After closing, you use the remaining savings from the down payment to pay the builder so that they can begin the construction process. Once that money is gone, you can then pull from the construction-to-permanent loan to fund the construction costs. Once the construction is finished, the loan will then switch to a permanent loan, such as a conventional loan with a 30-year term. 

Unlike conventional loans, lenders don’t provide the funds from construction loans in a single payment. Instead, they pay out in smaller installments, otherwise known as draws, throughout the construction process. When the construction is complete, the lender transfers the total cost to you. A pre-construction meeting with the broker, lender, borrower, and builder is held to establish a game plan and determine how many draws they will take out of the loan. 

Ultimately, a construction-to-permanent loan helps take the stress out of the entire home building process, making things easier and all in one place. 

If you need help determining whether a construction-to-permanent loan is right for you, contact our loan officers and let us help you!